Knowledge Series For Commerce Students: Know Your Home Loan

Home Loans cater to your needs or possibly a renovation, construction, or additional repairs…

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Home Loans cater to your needs or possibly a renovation, construction, or additional repairs to your humble abode. It is affiliated with a plethora of facets that the borrower needs to take into consideration before he/she can finally attempt to avail of such a loan.

How Much Of A Loan Amount Are You Eligible To Avail?
The predominant requirement is the eligibility of the borrower in the repayment of the loan that would determine the tenure, interest rates, and down payments attached to the loan amount. Your surplus income will drive the lender to figure out the actual amount of loan that you are eligible for.

So, your total assets, total liabilities, and the apparent stability of income play a pivotal role in gaining the lender’s trust. At the end of the day, a bank needs to ensure that your financial stability will not pose any problem for them in the repayment of the loan amount.

Additional Charges And Figures That You Need To Be Aware Of
Statistically, the bank assumes that as much as 50% of your income would suffice for your loan repayment, furthermore, the desired tenure, as well as pegged interest rate, will also impact the decision of assessing the amount of loan.

The majority of lenders expect around 10 to 20 per cent of the amount of home’s purchase in the form of a down payment on your part, and the remaining portion of the loan is eventually financed by the lender.

Now, this aggregate amount of loan encompasses certain charges, for instance, registration, transfer, stamp duty etc. You may be eligible for a larger amount but it does not necessarily mean that you have to get that much amount financed, even a significantly smaller amount can also be availed which directly relies on your requirement.

It is advisable, however, that keeping the ratio of down payment relatively higher than the ratio of loan amount so that the ultimate cost of interest payable can be mitigated and be kept at the desired level.

The Necessity Of A Co-Applicant
Additionally, having a co-applicant is an indispensable requirement to fulfil, so if you are the only owner of the property under scrutiny, then, in this case, an immediate sibling or any other family member can be anointed as a co-applicant.

What Specific Documents You Will Require For The Loan?
The documentation process is another integral and intrinsic phase where a checklist of specified documents is handed out by the bank which is to be filled accurately to steer clear of future ramifications.

Your unique identity proof, proof of residence, form 16/Income tax returns and recent salary slips which has to be decidedly authenticated by your employer and has to be self-attested.

But generally, in most cases, collateral security is also warranted such as insurance policies, units of mutual funds or any other significant investment. In most cases, the designated property is purposefully mortgaged in favour of the lender in the form of security until the loan has been repaid in its entirety.

Should You Secure Your Home Loan With An Insurance Policy?
It is vehemently advisable to secure insurance in favour of the home loan so that the liability does not fall on anyone else, but you alone will be secured enough to repay it. Now there are two prominent plans which are prevalent in today’s scenario, i.e. pure term insurance and the other one is a Mortgage insurance plan.

Now the loan amount should be equivalent to the insurance amount. As far as the premium is concerned, then a single premium, as well as regular premiums, will be the coveted choice. However, it is not mandatory to avail of insurance cover but a sense of self-assurance is generated by availing of such service.

Disbursement Of Loan
The documentation process is the precursor of the disbursement of the loan. The magnitude of the loan amount is solely scrutinised based on the documentary proof and that entails the procurement of a sanction letter from the bank which explicitly states the final amount of loan, duration, and applicable interest rate etc.

So in a nutshell, when the loan has finally been confirmed from the bank, it is commonly referred to as disbursement of the loan after getting through entire technical and legal or valuation activities and handover the cheque or demand draft in favour of seller after successful execution of sale deed and mortgage deed of the house.

Types Of Interest Rates
Rates of home loan can be distinct in the form of fixed or flexible. Calculation of EMI varies as per the various financial institutions/banks from where your loan has been sanctioned. Underlying additional charges also apply in tandem with the payment of the EMI such as processing fee which is generally about 0.5 to 1% of the loan amount. Now, repayment in the form of EMI begins right after the month when the loan has been disbursed.

Repayment Through ECS
Electronic Clearing System (ECS) is one of the avenues through which the repayment of the loan can be done, which involves direct payment of the loan amount from your salary account on a specific date of the repayment.

If you are eligible to pay higher EMI, then it will certainly benefit you since it acts as a long-term advance. Clearing the obligated amount faster will alleviate and relieve your mental stress easily.

The borrower always has this option at his disposal to pre-close his/her loan way ahead of the specified duration. However if the interest on your loan is of floating nature, then you will not be bound to pay additional charges, whereas if it is of a fixed nature, then certain charges may be applicable.

Every financer or lender should explicitly state in their statement the total interest as well as the principal amount payable at the very beginning of the financial year. This will eventually serve as a propellent factor to the department of accounts regarding your proof of investment for necessary tax deductions.

This phenomenon will serve you to reap tax benefits at the end of the year. It is prudent to pick the lender that renders the lowest EMIs option which can mean that you are paying a significantly lesser amount of money in the form of repayments as compared to other applicants from any other financial institution.

How Your Grievances Can Be Addressed
There may be incidences that a borrower may not be satisfied with the services rendered by the bank or some other pertaining relevant problem might occur.

So in that case, you can mention your grievance specifically in writing delineating the factors that displeased you, which needs to be addressed at the concerned branch and if however, the bank does not resolve or overlooks your concern then you have the option at your disposal to lodge your complaint with the ombudsman.

Income Tax Benefit of Housing Loan
Interest payment for housing loan is deductible under the head income from house property. The maximum limit is Rs. 2 Lacs p.a. u/s. 24(b). Moreover, we can also get benefit u/s. 80C of income tax for the principal repayment of housing loan with maximum limit of Rs. 1.50 Lacs. The stamp duty and registration charges paid at the time of registration of sale deed is also deductible u/s 80C of Income Tax Act, 1961.

Mutual Funds in India

Mutual Funds in India   Friends, let us take a stock of some basic…

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Mutual Funds in India


Friends, let us take a stock of some basic information of mutual funds in India.


  1. Structure:

In India, Mutual Funds are having three tier structure. Mutual Fund is set up as a trust, which is sponsored by a sponsor entity. Sponsor entity takes approval from SEBI to launch mutual fund. This entity then establishes a trustee company to become trustee of the mutual fund. Most importantly, the sponsor establishes Asset Management Company (AMC) to manage the mutual fund assets. Hence, the structure will look like as below. Further, every scheme of the mutual fund needs specific separate clearance from SEBI and then can be launched.










  1. Features:

Some of the features of mutual funds are lower investment sizes, professional management, transparency, diversification, liquidity are unique and offer advantages to investors.

  1. Types of Schemes:
  2. Equity Schemes: Invests primarily into various shares and equity instruments. (Generally, 65-100%). LTCG beyond 1 year is tax free for resident Indians.
  3. Debt Schemes: Invests primarily into debentures, bonds, debt market instruments, money market instruments, Govt. Securities etc. LTCG beyond 3 years is applicable with indexation for resident Indians.
  4. Hybrid Schemes: As the name suggests, it is a combination of Equity + Debt in varied proportions. If more than 65% assets are in Equity, taxation of Equity Schemes are applied. Otherwise, taxation of debt schemes are applied.
  5. Funds of Funds: As the name suggests, these schemes invest in various mutual fund schemes. If more than 65% assets are in Equity funds, taxation of Equity Schemes are applied. Otherwise, taxation of debt schemes are applied.
  6. International Funds: As the name suggests, these schemes invest in international securities / funds. Taxation would be same as Debt Schemes, if less than 65% of the assets invested in Indian Equity Instruments.
  7. Exchange Traded Funds: As the name suggests, these funds are listed on a stock exchanges and gets traded like a share. Hence, investors can buy / sell them freely.
  8. Index Funds: As the name suggests, these funds are replica (copy) of some index like Sensex, Nifty etc. and provides matching returns of relevant index.
  9. Closed-end Funds: These funds are closed for subscription / redemption.
  10. Interval Funds: These funds are closed for subscription / redemption for a fixed interval.
  11. Open-end Funds: These funds are open for subscription / redemption on continuous basis.


  1. Transaction Types:
  2. Lumpsum Investment:

Investing any amount of money in a mutual fund scheme at one go.

  1. Lumpsum Redemption:

Withdrawing any amount of money from a mutual fund scheme at one go.

  1. Switch Transactions:

Switching-out from existing scheme of a mutual fund and switching-in the same into another mutual fund scheme. (Basically, transferring from one scheme to another).

  1. SIP (Systematic Investment Plan):

One can put every month / quarter fixed amount in a mutual fund scheme as a regular investment.

  1. SWP (Systematic Withdrawal Plan):

One can withdraw every month / quarter fixed amount from a mutual fund scheme as a regular income / withdrawal.

  1. STP (Systematic Transfer Plan):

One can transfer every month / quarter fixed amount from one scheme of mutual fund to another.


  1. Mutual Fund Industry in India:

There are around 45 mutual fund companies in India with total Assets Under Management (AUM) as on 30-Jun-17 of approx. Rs. 17 lakh Crore. E.g. ICICI Prudential Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Franklin Templeton Mutual Fund etc. MF industry in India a growing at a very fast pace recently and is projected to grow multifold in years to come. Thousands of schemes are launched by these companies for the benefit of investors. For more knowledge and information about mutual funds India, one can visit websites of




  • By Tejas Patel

Bank Loans

I have got a call from a lady “Sir I am calling from ****…

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I have got a call from a lady “Sir I am calling from **** bank, we are providing personal loan…” and I disconnected the call.

Frankly speaking, today’s marketing gimmick of agents have made various loans very popular. Still I think there is good scope to discuss about various credit facilities provided by banks.

We can bifurcate loans into simply two parts (a) Secured Loans (b) Unsecured Loans. Today let us only focus on loans / credit facilities available for businesses. Loans provided to retail customers will be discussed later.

  1. Term Loan:

These loans are specifically provided to buy fixed assets for businesses like plants, properties, equipments, machinery, furniture, fixtures etc. this loans are secured loans against assets being created through such loan. Generally as per current market practice and depending upon financial strength of the borrower, in India margin of 25-40% is called from entrepreneurs and rest is funded by banks.

  1. Working Capital Limits:

These are basically limits sanctioned by banks to businesses. Businesses are charged interest, when they use the limit to the extent of use of credit. These limits are secured against current assets of the business. Many times, these limits are referred as Cash Credit or Over Draft, but they are not the same. Sanction of such limits depends upon working capital cycle, current asset position, liquidity of the business and of course financial strength of the business. Banks have their own criteria, how much to sanction to a particular business.

  1. Project Loan:

These are basically loans provided to a particular project of an entrepreneur. Depending upon the nature of the project, green field, brown field, white field etc. as well as industry, sector, financial strength of the promoters, past experience of the promoters and such other risks involved in the project, banks appraise the project and decide the margin requirements, payment tenure as well as rate of interest. These loans are many times mixure of term loans + working capital limits + letters of credit + bills discounting etc.

  1. Letter of Credit:

Mainly used by businesses involved in export / import businesses. LC is issued by banker of the customer for release to the banker of the supplier once certain pre-agreed conditions are met by the supplier. Banker of the supplier in effect credits the sum to the account of the supplier. Banks do charge commission and interest depending upon the situation on providing such facilities. We will talk more about LCs in some other article, as it requires some more focus.

  1. Bill discounting:

Bills / promissory notes of customers / bankers of the customers are accepted by banks and the same are paid before due date to the businessmen. This credit facility involves discounted payment release and the same may be as an interest.

  1. Infrastructure Finance:

In India, our infrastructure requirements are massive. Banks have a big role to play in this sector. These loans are generally long tenured loans. All these loans are secured loans. Many times, sponsors / govt. / public authorities stand guarantee to these loans. Infrastructure finance itself is a large topic of study research and discussion, which may require detailed focus in separate article.

  1. Foreign Currency Loans:

Many businesses, subject to RBI guidelines are eligible to obtain foreign currency loans from banks. Banks lend the customer in foreign currency. Many of these loans are used specifically by exporters and can prove to be cheaper than rupee loans, since many developed nations have lower interest rate regime.

  1. Other credit facilities:

Many other credit facilities are provided by banks to businesses like overdraft, FDOD, drop line credit, packing credit, bridge loans etc.

Your suggestions, feedback, expectations may please be emailed to [email protected]

– Tejas Patel

Services offered by banks

In today’s article, we will discuss briefly about various services offered by the banks.…

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In today’s article, we will discuss briefly about various services offered by the banks.

  1. Primarily banks accept deposits and provide loans and advances while earning interest rate differential between the two activities.

With these being major functions, there are other services banks provide for which they charge fees, commission, charges, brokerage etc. We will discuss about various loan schemes offered by banks in another article.

  1. Payment services:

Banks provide various payment services to their clients like cheques, drafts (demand drafts / bank drafts), pay orders, electronic payment services like NEFT, RTGS, IMPS, UPI, SWIFT etc., credit cards, debit cards, ATMs, POS machine services etc.

Without payment services our routine life will halt. Banks generally levy bank charges or fees for such services.

  1. Foreign Exchange services:

Banks also provide various foreign exchange services to their client like currency exchange-buy-sell, currency management, currency hedging, currency derivatives etc. Banks generally charge fees / brokerage / commission on such services.

  1. Distribution of financial products:

Today many banks earn their significant income from distribution of financial products like insurance, mutual funds etc. With their wide reach banks are able to reach to the last customer of the country and in turn provide access to financial products to everyone. Banks generally don’t charge customers for these services instead gets commission income from financial service providers.

  1. Advisory services:

Today many banks are providing various consultancy and advisory services like investment banking, financial advisory, wealth management, treasury management, project management etc. Banks charge fees from the clients for proving these kind of services.

  1. Other services:

Banks have wide network, healthy financial and commercial ties with business entities and financial companies and trustworthiness among general public. Hence, people / businesses entrust banks to provide multiple services like locker facility, collateral management, trustee services, custodian services, depository etc.

We will discuss about above services in detail in further articles. You can put in your comments about feedback to the above article or your expectations for the coming articles.

– By Tejas Patel